Question

Splash Planet is considering purchasing a water park in Atlanta, Georgia, for $1,820,000. The new facility will generate annual net cash inflows of $460,000 for eight years. Engineers estimate that the facility will remain useful for eight years and have no residual value. The company uses straight-line depreciation, and its stockholders demand an annual return of 12% on investments of this nature (Click the icon to view the Present Value of $1 table.) 3 (Click the icon to view Present Value of Ordinary Annuity of $1 table.) (Click the icon to view Future Value of $1 table.) (Click the icon to view Future Value of Ordinary Annuity of $1 table.) Read the requirements. Requirement 1. Compute the payback, the ARR, the NPV, the IRR, and the profitability index of this investment First, determine the formula and calculate payback. (Round your answer to one decimal place, X.X.) = Pavback ] - C years

Answer 1

Calculate payback period

Initial investment	/	Annual cash flow	=	Payback period
1820000	/	460000	=	4.0 years